How you can use the tax system to your advantage if you have a pension.

We all love a tax break, and pensions offer some of the most generous around. But it's not simply a case of paying as much as you can into a pension and waiting for a big tax refund – the rules are very complex, so there are lots of little wrinkles you need to know about if you want to make the most of tax relief. Here are some of the most important.

Save in an Isa until you pay higher-rate tax

Someone who is currently a basic-rate taxpayer but expects to move into a higher bracket later should use an Isa until he or she pays the higher rate of tax, and then switch to a pension to qualify for the higher rate of tax relief.

Imagine that you put £5,000 into a pension today while you are a basic-rate taxpayer. Tax relief at 20pc comes to £1,250, and this is added automatically, making the total amount put into your pension £6,250, according to John White of RSM Tenon, the accountancy firm. Now we'll assume 3pc annual growth, so the fund will be worth £7,245 after five years.

But what if you become a higher-rate taxpayer five years from now and delay your pension contribution until then, using Isas instead in the meantime? Your £5,000 in the Isa will grow to £5,796 at 3pc over five years. If you then put this amount into a pension as a 40pc taxpayer, the tax relief comes to £3,864 and the value of your pension pot will be £9,660. This is a 93pc return and £2,415 more than if you had invested in a pension at the outset.

Use your previous years' tax-free allowances

There is an annual cap on the amount that you can put into a pension. It is currently £50,000 a year, although it will fall to £40,000 in April next year. However, you can "carry forward" up to three years' unused allowances, so this year you could make a total contribution of £200,000, including the current year's. However, you must have earnings to at least the level of the total contribution in the year of payment.

The fall in the annual allowance will not mean you can carry forward less than if you had made this year's contribution, for example, "on time".

There is a potential problem, however: you must have been a member of a pension scheme – whether private or company – during the year or years that you carry forward, warned Vince Smith-Hughes of Prudential.

Spread contributions to make full use of highest rate of relief

You may be tempted to put as much as possible into your pension before the annual allowance is cut. But it won't always be the best idea.

Let's imagine that you earn £70,000 and are thinking of putting £50,000 into your pension. If you put the whole £50,000 in this year, only the first £27,525 attracts tax relief at the higher rate of 40pc, as earnings up to £42,475 are taxed at the basic rate (after the tax-free personal allowance). The net cost would be £34,500, once you have claimed all the tax relief, and the average rate of tax relief would be 31pc, Mr Smith-Hughes calculated.

But if you split the contribution across two tax years, paying £25,000 in 2012/13 and another £25,000 in 2013/14, 40pc tax relief is given on both contributions. The net cost is then £30,000, a saving of £4,500.

Use up 50pc relief before it goes

The top rate of tax, which applies to earnings of more than £150,000, will fall from 50pc to 45pc in April this year, so the top rate of tax relief will do the same. If you have a lump sum to invest, it makes sense to do it now, when you will in effect double your money by putting it in a pension.

But the same considerations as above apply if the contribution exceeds the amount of salary that would attract 50pc tax. So if, for example, your earnings are £175,000, only the first £25,000 of a £50,000 contribution would attract 50pc tax relief and the average rate of relief would be 45pc and the net cost £27,500, Mr Smith-Hughes said.

If instead you put £25,000 in this year and £25,000 next, you get 50pc relief on the first contribution and 45pc relief on the next and your net cost would be £26,250 – a saving of £1,250.

If you plan to use carry forward, top-rate taxpayers should do it now – any unused years' allowances used after April 5 this year will attract only 45pc tax relief, said Billy Mackay of A J Bell, the Sipp (self-invested personal pension) provider.

Get back your child benefit …

Did you know that paying into a pension could mean that you keep your child benefit? The benefit, worth £1,752 to a family with two children, is withdrawn progressively in families where one parent earns between £50,000 and £60,000. This came in on January 7, but will apply for the whole tax year in 2013/14.

A pension contribution could bring your taxable salary below £50,000 and allow you to keep the benefit. If you cut your taxable income to below £60,000 you will still receive some child benefit.

… or your personal allowance

The same technique could save your personal allowance if you are in danger of losing it because you earn more than £100,000.

For people earning more than this sum, the tax-free personal allowance on the first £8,105 of income is reduced by £1 for every £2 earned over £100,000. So anyone who earns £116,210 or more loses the personal allowance entirely. This is an effective tax rate of 60pc, tax experts say.

Alan Morahan of Punter Southall, the pensions consultancy, said: "One way to reduce the effect of this loss is to contribute earnings over £100,000 to a pension scheme. Someone with income of £116,210 who contributes £16,210 gross to a pension will effectively get that contribution at a net cost of £6,484 due to the tax saving."

Use drawdown to manage taxable income in retirement

Even after retirement, you can fine-tune your finances to pay as little tax as possible. If you choose to take your pension via income drawdown, you can choose how much total income you have each year, so you may be able to avoid paying higher-rate income tax, for example.

Use flexible drawdown to avoid 55pc tax

There's another tax that drawdown users can sometimes avoid – the 55pc levy on any money left in their pension fund at death. If you have "flexible drawdown" you can withdraw as much money from the fund as you like, whenever you like, although you must have at least £20,000 in guaranteed income from other sources to qualify.

Adrian Walker of Skandia said: "The benefits of flexible drawdown should not be underestimated – it can dramatically help with estate planning."